concurring: I agree with the result reached in this case but wish to add some comments in light of my case, Kahler Corp., 58 T.C. 496 (1972), which was also approved by the Court this day.
Both cases involved the application of section 482 to situations where interest-free advances passed between related parties. However, the tack followed by the Commissioner in the two differed and I am concerned that this may be a cause for confusion and obscure the common ground which exists between the two opinions.
In both Kerry and Kahler, we affirmed this Court’s previous position in this area: namely, that the Commissioner cannot utilize section 482 to “create” income solely by imposing arm’s-length dealing on related parties where his only allegation is that there were interest-free advances between the parties. In Kerry, however, we are going one step farther because respondent not only attempted to allocate nonexistent interest income per se as in Kohler, he in addition sought to allocate income generated by the Kerry subsidiary from the use and consumption of the interest-free funds.
¡Consistent with Smith-Bridgman & Co., 16 T.C. 287 (1951), acq. 1951-1 C.B. 3; PPG Industries, Inc., 55 T.C. 928 (1970); and Huber Homes, Inc., 55 T.C. 598 (1971), the former type of allocation is again rejected in both Kerry and Kabler. The latter type of allocation, however, that of income generated from the use and consumption of the interest-free advances, is approved in Kerry because it is an allocation of income from one related party to another and is not an allocation of nonexistent interest. Kerry is the first case before this Court in which we have been faced with the application of section 482 to an improper deflection of income caused by the use or consumption of interest-free advances. We are holding, on the particular facts of Kerry, that the Commissioner acted reasonably under the authority of section 482 with respect to this allocation of income where the interest-free advances were used and consumed by the subsidiary-borrower to purchase income-generating assets. The respondent urged this approach in Kerry. He did not do so in Kahler.
FORRESTER, J., agrees with this concurring opinion.